Online sales hit car dealerships

A change to the car-buying model would match the process now where most fleet vehicles are delivered to the buyer’s home or office without a visit to the dealership. Photo: David Mariuz

Marc Sibbald

In July 2012, Subaru Australia launched the BRZ compact sports coupe, and sold it exclusively online, direct from the manufacturer.

It was pitched as the birth of an icon – and the new way to buy a car. Franchise dealers were unhappy, but Subaru said it was the right sales model due to the vehicle’s limited supply in Australia.

With the entrenched franchise structure of auto retailing in Australia it’s unlikely this model will expand to other manufacturers and models quickly. But its success highlights the potential for low-cost retailing that may change the way we buy cars.

This change to online sales was recognised in the recent release of the 2013 National Automotive Industry Survey.

The Australian Automobile Dealers Association (AADA) commissioned Moore Stephens Automotive to survey automotive retailers, wholesalers and distributors, and industry support service providers.

At the launch, Ian Field, AADA chairman said, “We are entering a period of enormous change for the Australian automotive industry, with difficult challenges ahead.

“Under current business models, there is far too much requirement for automotive dealers to invest in facilities within an agreement period that just doesn’t give them the ability to amortise the cost of those facilities.

“Looking ahead, as this research does, we need a more rational approach to facility requirements for automotive dealerships, given that consumer ­patterns are increasingly shifting to online sales.”

Online sales match other processes

For the new breed of fleet buyers who are embedded in the procurement team, online purchasing would align vehicles with their other categories such as stationery and travel. All medium to large fleet purchasing arrangements are negotiated with the manufacturer, so it makes sense for procurement professionals to have one contact at a manufacturer level, and treat the dealer as the delivering agent engaged by the manufacturer.

A change to this purchasing model would also match the process now where most fleet vehicles are delivered to the buyer’s home or office without a visit to the dealership.

This change in process would alter the current dealership business model, which relies on the upfront revenue from vehicles sales and finance ­commissions.

Dealerships would be required to focus more on their service and parts operations, so revenue is generated long term from repeat buyers.

John Gavljak, director, audit and assurance, at Moore Stephens, believes dealerships need to focus on their aftersales areas (parts and service) to improve profitability. Findings from the survey suggest a strong aftersales business will guard against market ­volatility and help dealers survive fluctuating monthly sales volumes.

Survey respondents were also asked which areas of their business would offer the most opportunity and where they would invest.

Workshop facilities and virtual showrooms were ranked as the projects most likely to receive future investment. A virtual showroom will require a change in thinking from the practice of building large facilities and is a significant investment that only the most profitable dealers will be able to afford.

The industry has been very resilient and the current business model has allowed dealers to recover strongly from the global financial crisis and natural disasters that affected vehicle supply. But the digital age is the tipping point, and will see the biggest changes to hit dealerships in the past 50 years.

The need to invest in virtual or online showrooms is also confirmed by research conducted this year by ACA Research into the customer journey to find automotive finance.

Dealerships needed for information, servicing

The Automotive Finance Insight reports look at the factors that drive consumer car finance, including information sources in the search for a vehicle. The report says consumers rely on websites and car dealerships for information when searching for vehicles.

Car manufacturer websites were used by 67 per cent of respondents, and dealer websites by 53 per cent of respondents. The report also shows that even after significant online research, buyers still like to visit a dealership, 53 per cent of people still seeking information from the salesperson at the dealership.

Gavljak is not surprised by the number of people that still visit a dealership. He believes retail buyers are not ready to buy online without a test drive.

“We call this a moment of truth for dealers. The test drive is where the dealers have the opportunity to create a relationship with the potential buyer.

“I think this will always be part of the buying experience.”

Dealerships are complex businesses combining selling new and used cars, parts distribution and vehicle servicing. The current model has proved the best way to interface with customers in all these areas.

But if Australia follows international trends, it may not be long before manufacturers open “brand experience centres” in Collins Street, Melbourne, and Queen Street Mall in Brisbane.